Original Author: Ray Dalio

Translation and Compilation: BitpushNews

On the morning of April 7, Eastern Time, Ray Dalio, founder of Bridgewater Associates, published a new article stating that the current market is overly focused on the superficial aspects of tariffs while ignoring deeper systemic changes. Dalio believes we are witnessing a synchronous reconstruction of five major forces:

• Collapse of the monetary/economic order;

• Disintegration of the domestic political order in the United States;

• Reorganization of the international geopolitical order;

• Destructive natural disasters (droughts, floods, and pandemics);

• Significant impacts of technological changes (such as artificial intelligence).

Below is the full text of the article:

At this moment, people understandably focus a great deal of attention on the tariffs that have been announced and their significant impact on the market and the economy, but almost no one is paying attention to the fundamental reasons that led to these tariffs and the potentially greater destruction that may follow. Don’t get me wrong; I’m not saying these tariffs are unimportant—they are indeed very significant events, and we all know that U.S. President Trump is a key figure in their implementation. However, most people overlook the fundamental context that led to his election and the imposition of these tariffs. They also largely ignore the more important forces that drive everything, including the forces that led to the tariffs.

What we must always remember is the larger and more important fact: we are witnessing a typical collapse of a major monetary, political, and geopolitical order. Such a collapse generally occurs only once in a lifetime, but it has happened multiple times in history; it arises whenever unsustainable conditions similar to the current ones emerge.

More specifically:

1. The monetary/economic order is collapsing because there is too much existing debt, the speed of new debt accumulation is too fast, and capital markets and the economy rely on this unsustainable massive debt support. This debt is unsustainable due to severe imbalances—on one hand, debtors (such as the U.S.) are heavily burdened by debt but continue to borrow to satisfy their excessive consumption because they are addicted to debt; on the other hand, creditors (like China) already hold too many debt assets and rely on exporting goods to these debtor countries (like the U.S.) to sustain their own economies. There is immense pressure to correct these imbalances, and this correction will significantly change the monetary order.

For example, in a de-globalized world where major participants distrust each other and fear that the other will cut off the supplies they need (which is the U.S. concern) or fail to meet their debt obligations (which is China’s concern), the existence of massive trade imbalances and capital imbalances is clearly discordant. This situation is essentially a state of war, where achieving self-sufficiency is paramount. Anyone who has studied history knows that in similar situations, risks often lead to the problems we face today.

Therefore, the old monetary/economic order—where some countries are responsible for providing cheap manufacturing, the U.S. imports from them while accumulating massive debt, and countries like China accumulate U.S. debt assets—must change. This already unsustainable situation has become more severe due to issues such as the decline of U.S. manufacturing, the loss of middle-class jobs, and an increased dependency on "Made in China." In the era of de-globalization, this enormous imbalance, which reflects a high degree of interconnection between trade and capital, must be narrowed in some way.

Additionally, the level of debt held by the U.S. government and the speed of debt growth are clearly unsustainable. (For more on this, you can refer to my new book, How Countries Go Broke: The Big Cycle.)

It is evident that in order to reduce these imbalances and excesses, the monetary order will undergo drastic and destructive changes, and we are currently in the early stages of this process. This change will have a huge impact on capital markets, which in turn will have profound effects on the economy; I will explore this topic in depth at another time.

2. The domestic political order in the United States is collapsing due to the vast disparities among the American people in terms of education, opportunity, productivity, income and wealth, values, etc.—coupled with the existing political system's inability to address these issues. This situation is reflected in the ruthless power struggles between populists on the left and right, vying for control over affairs. This leads to the disintegration of democratic institutions, as democracy requires compromise and adherence to the rule of law, both of which have historically shown to collapse during similar periods.

History also tells us that strong authoritarian leaders often rise in environments where the rule of law and democratic institutions are weakened. Clearly, the current unstable political situation will be influenced by the aforementioned four forces—for example, stock market and economic issues are likely to trigger political and geopolitical problems.

3. The international geopolitical order is collapsing because the era of a dominant power (the U.S.) leading and setting the order, with other countries following, has ended.

The multilateral cooperative world order once led by the U.S. is being replaced by a "might makes right" unilateralism. In this new order, the U.S. remains the most powerful country in the world and is shifting towards an "America First" unilateral approach. This has been manifested through U.S.-led trade wars, geopolitical conflicts, technology wars, and even military conflicts in certain cases.

4. Natural disasters (droughts, floods, and pandemics) are causing increasingly severe destructive impacts;

5. Technological changes (such as artificial intelligence) will also have significant impacts on various aspects of life, including the monetary/debt/economic order, political order, international order (through impacts on economic and military interactions between countries), and the costs of responding to natural disasters.

The changes in these forces and how they interact with each other are the core issues we should truly focus on.

Therefore, I urge everyone not to be distracted by the dramatic changes brought about by "tariffs," but to focus on these five forces and their interrelationships, as they are the true driving forces behind the "overall big cycle changes." If you are misled by these superficial phenomena, you will:

a) Ignore how the current state and dynamics of these significant forces give rise to news events;

b) Fail to reflect on how news events react back on the fundamental forces;

c) Disconnect from tracking the typical evolution patterns of the big cycle—this is the key coordinate for predicting the future.

I also hope you will think about these key interrelationships. For example, consider how Trump's actions regarding tariffs will affect:

1) The monetary/market and economic order (it will have a destructive impact on that order),

2) The domestic political order in the U.S. (likely to bring destruction, as this may weaken his support),

3) The international geopolitical order (clearly causing disruptions in financial, economic, political, and geopolitical aspects),

4) Climate issues (to some extent weakening the global capacity to effectively respond to climate change),

5) Technological development (which may have positive effects on certain aspects of the U.S., such as bringing more technology manufacturing back home, but will also negatively disrupt capital markets, which are the supporting mechanism for technological development, and there are many more aspects that cannot be listed one by one).

As you think, please remember: everything happening now is merely a reoccurrence of events that have happened multiple times in history. I suggest you study the measures taken by policymakers in similar situations in history to help you build a possible action list—such as suspending debt service payments to "enemy countries," establishing capital controls to prevent free capital outflows, imposing special taxes, etc. Many of these policies were unimaginable not long ago, so we should also study how these policies operate.

After the collapse of the monetary, political, and geopolitical orders, dramatic changes often occur in the form of depressions, civil wars, and world wars, followed by the emergence of new monetary and political orders to regulate interactions within nations, as well as new geopolitical orders to regulate interactions between nations, until these new orders collapse again. This process repeats itself and is a historical law we should deeply understand.

I elaborated on these topics in my book, Principles for Dealing with the Changing World Order, where one can clearly see how this "overall big cycle" unfolds in six distinct phases, transitioning from one order to the next. The content of the book is detailed, making it easy for readers to compare the current situation with typical historical evolutions, thereby identifying which phase we are in and what may happen next.

When I wrote that book and others, I hoped, and still hope:

1) To help policymakers understand these forces and interact with them to promote better policies that yield better outcomes;

2) To help individuals—who may not be able to influence policies alone but can collectively generate power—better cope with these forces to strive for better outcomes for themselves and those they care about;

3) To encourage smart people with different viewpoints to engage in open and in-depth discussions with me, working together to discover the truth and find ways to respond.

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